US president Barack Obama has announced sweeping new measures to end the increasingly popular practice of US firms relocating their headquarters to countries with more favourable tax regimes through foreign takeovers.
The US Treasury will introduce new measures making so-called tax inversion deals less attractive to firms.
Measures include an end to “hopscotch” loans whereby profits are not subject to US tax and a change to the required ratio for US and foreign shares in the merged business.
Announcing the new rules, Obama said “We’ve recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill, and I’m glad that Secretary Lew is exploring additional actions to help reverse this trend.”
The new rules could put an end to the lucrative deals seen by UK firms in recent months where low rates of tax have attracted a number of US buyers.
The largest to date is US pharmaceutical company Abbvie’s purchase of Irish headquartered drugmaker Shire for $54bn, but it has yet to be finalised.
Treasury secretary Jacob Lew said:
"These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether.
"While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem. Treasury will continue to review a broad range of authorities for further anti-inversion measures as part of our continued work to close loopholes that allow some taxpayers to avoid paying their fair share.